Volume growth moderates to single-digit in Indian auto sector: IIFL Capital Services

4 Jul 2023 , 11:08 AM

Volume growth across Auto segments came in at low-to-mid single digits in June 2023, confirming analysts of IIFL Capital Services view that FY24 would see sharp deceleration in growth, after the strong cyclical recovery seen in FY22 and FY23. PV industry volumes grew 2% YoY in June. 2W industry volumes grew only 4% YoY and came off 7% MoM, as analysts of IIFL Capital Services entered the seasonally weak period. Tractors grew 6% YoY and 20% MoM in June (seasonal spike). MHCV industry grew 8% YoY; this is an improvement vs recent months. Reversal of pre-buy impact in Jan-Mar (related to BS-VI Phase 2) had led to weak volumes in Apr-May. LCV industry declined 3% YoY, which is a continuation of weak trend in recent months. Based on these numbers, analysts of IIFL Capital Services believe that risk to FY24 volume projections, if at all, is to the downside.

MHCV industry recovers after “pre-buy reversal” in Apr/May; LCV stays weak: 

MHCV industry volumes grew 8% YoY in Jun’23. MHCV SAAR, which had collapsed to 340k in Apr/May (due to reversal of prebuy impact in Mar-2023), normalised to 385k in Jun’23. This is close to analysts of IIFL Capital Services estimate of about 400k volumes in FY24. Ashok and Tata Motors’ MHCV market shares are quite stable, at ~31% and ~47% respectively. LCV industry declined 3% YoY; they see this as a continuation of recent weak trend. Analysts of IIFL Capital Services forecast zero growth for LCV in FY24.

PV growth moderates to 2% YoY: 

Analysts of IIFL Capital Services estimate PV industry to have grown 2% YoY in Jun’23. They expect PV volume growth to stay muted in Q2FY24 (Jul-Sep). Maruti’s Jun’23 market share stood at ~41% — lower than May (43%), and is attributable to Maruti’s 1-week production shutdown in June. Tata’s market share stood at ~14% in Jun’23; similar to FY23. M&M’s UV volumes stayed at ~32.6k; volumes are not scaling up, despite high order book (close to 300k).

Tractors grow 6% YoY:

Volumes grew 6% YoY in Jun-2023. The 20% MoM jump is seasonal. Sentiment for tractor sales was mixed, as markets with good rainfall saw good momentum, and markets with delayed monsoon saw soft demand. Analysts of IIFL Capital Services currently forecast 5% growth for Tractor industry in FY24. If monsoon is impacted due to El Nino effect, there would be downside risk to analysts of IIFL Capital Services estimate. 

Domestic 2Ws up 4% YoY; 2W exports see sequential improvement: 

2W industry volumes grew ~4% YoY but declined 7% MoM (seasonal). Analysts of IIFL Capital Services understand that underlying retails are clocking midto-high single-digit growth. Hero continued to underperform the industry with 9% YoY decline in dispatches. Coming to 2W exports, analysts of IIFL Capital Services continue to see YoY decline in volumes (down ~30% YoY). However, on a sequential basis, they saw volumes improve by high single-digit.